Aurelia Butler

US jobs growth was weaker than forecast in July and was revised lower for the previous two months, with the labour market cooling after almost 18 months of interest rate rises.The economy added 187,000 new non-farm jobs, according to data released by the Bureau of Labor Statistics on Friday, compared with forecasts of 200,000.That followed a downwardly revised 185,000 in June — and could be taken as an encouraging sign that the Federal Reserve is making progress in its fight against inflation.The Fed and investors have been closely monitoring the health of the labour market, as wages and jobs growth are critical contributors to inflation.However, the labour market more broadly was still in robust shape, with the unemployment rate dipping to 3.5 per cent.Hourly earnings growth was stronger than expected at 4.4 per cent year on year, well above the levels considered consistent with the Fed’s 2 per cent inflation target. Wages grew 0.4 per cent month on month, compared with consensus forecasts of 0.3 per cent.Optimism has grown in recent weeks that the central bank is on track to bring inflation under control without driving the economy into a severe recession. Consumer price inflation fell further than expected in June, while the central bank’s preferred indicator — the core measure of the personal consumption expenditure index — also retreated to its lowest level since October 2021. However, the Fed has warned that persistent strength in the labour market may make it harder to bring inflation all the way down to its target.“I think markets have been overly optimistic with the last sets of inflation numbers,” said Agron Nicaj, US economist at MUFG. “As long as consumer spending remains high and the labour market remains strong, I would expect inflation to remain elevated.”Job gains in recent months have been spread across sectors, but Nicaj said he would be paying particular attention to any signs of weakness in manufacturing. Manufacturing employment slipped by 2,000. A survey by the Institute for Supply Management earlier this week suggested activity in the politically important sector was contracting, and Nicaj said “a lot of signs suggest that it will be one of the first industries to have consistently negative employment growth”.The Fed last week lifted interest rates to their highest level in 22 years and insisted it may announce further hikes if required, but futures markets suggest most investors think the central bank will hold rates steady for the rest of the year.Markets on Thursday evening were pricing in just a 17 per cent chance that the Fed lifts rates at its next meeting in September, and about a 38 per cent chance that rates rise at least once by November. More

LONDON (Reuters) – Countries around the world are battling heatwaves and floods fuelled by El Nino, a naturally occurring climate phenomenon that has a 90% probability of persisting in the second half of 2023, according to the World Meteorological Organization. The worldwide impact can be enormous, but the stakes are higher for emerging markets, which are more exposed to swings in food and energy prices and production and often have smaller fiscal buffers that limit their ability to cushion the impact.Below are five charts showing the impact El Nino – when waters in the central and eastern Pacific are warmer than usual – could have on key emerging markets. 1/MOST VULNERABLE India and Egypt are among the economies that are overall most vulnerable to El Nino’s impact this year, according to an index by Standard Chartered (OTC:SCBFF) Bank, taking into account the weight of the primary sector, the share of food in inflation baskets and a country’s ability to offset through fiscal support. Ghana, Kenya and the Philippines are also high up on the list while countries such as South Africa and Chile are among the least vulnerable – together with most of the developed market economies such as Germany or the United States. “We believe that the countries most at risk from an El Nino event this year are those that have relatively weak economic fundamentals and that experienced relatively weak agricultural production during the 2014-16 El Nino period,” said Eugene Klerk, head of ESG Research at Standard Chartered Bank. 2/AGRICULTURAL PRESSURESSudden changes in rainfall or temperature can wreak havoc on crops. With agriculture accounting for a larger share of the economy and employment in Africa and South Asia than elsewhere, these regions are especially vulnerable to the El Nino fallout. “A sharp reduction in the volume of crops that can be exported could result in balance of payments strains for some economies,” according to a research note led by Jennifer McKeown, chief global economist for Capital Economics. India has banned exports of a key variety of rice, cutting overall supplies to world markets by a fifth. Nearly 90% of rice is produced in Asia, and threatened by dry El Nino weather, with the Philippines and Thailand also at risk. Other produce in focus includes cocoa from Ivory Coast and Ghana, sugar from India and Thailand and coffee from Vietnam and Indonesia.There are, however, exceptions – Argentina had a record soy harvest in previous El Nino episodes, according to Morgan Stanley (NYSE:MS). “El Nino tends to be negative in EM, though Argentina is an exception,” the bank’s Fernando Sedano wrote in a note, adding “Argentina is likely the only net winner of El Nino.”3/FRAGILE FOOD Food prices make up a larger share of the CPI baskets of emerging markets – as much as 40% in many low income economies – so El Nino’s severity is set to directly impact inflation. A European Central Bank analysis suggests that a one-degree temperature increase during El Nino historically has raised global food prices by more than 6% after one year.Southern Africa, Central America and the Caribbean and parts of Asia are of “particular concern” due to already high levels of food insecurity, according to the Food and Agriculture Organization of the United Nations(FAO). David Rees, senior emerging markets economist at Schroders (LON:SDR), warned that a strong El Nino could push emerging market food inflation back into double digits in 2024. 4/A HYDRO QUESTIONSignificant changes to rainfall, or prolonged droughts, could also impact hydropower output and boost gas and coal prices as a result, according to Capital Economics. “Several countries, mostly in Africa, are heavily reliant on hydroelectricity,” the note said. “Lower rainfall could hinder electricity generation and possibly lead to power rationing.”Energy prices are also a key driver of food inflation, they warned, while warmer temperatures could increase demand for air conditioning. 5/CLOUDING THE INFLATION PICTURE Latin American central banks were among the first to ramp up interest rates after COVID-19 to fight rising prices, and are the first to kick off easing, led by Chile and Brazil.But the El Nino impact on agricultural production and electricity generation could complicate disinflation, and lead to higher-for-longer rates. “Colombia and Peru are the most exposed countries, followed by Chile and Brazil to a lesser extent,” said BofA’s Latam local market strategist Antonio Gabriel.BofA estimates that El Nino would be “at least of moderate intensity this year”, but severe intensity could raise inflation by up to 2.5% in Colombia and 1.5% in Peru. “Mexico seems mostly isolated,” Gabriel added. More

Investors secured U.S. money market funds worth about $58.56 billion in their biggest weekly net buying since March 29, data from Refinitiv Lipper showed.U.S. equity funds drew $133 million worth of inflows, compared with about $2.57 billion worth of net purchases a week ago.U.S. equity growth funds saw net outflows worth $3.48 billion, the biggest since June 7, but value funds had $891 million worth of net buying.Among sector funds, baring industrials and communication services, all other sectors saw outflows. Utilities and real estate recorded a net $471 million and $435 million worth of outflows, respectively.U.S. bond funds witnessed about $1 billion worth of outflows, the first weekly net selling since June 28.Investors withdrew a net $1.45 billion and $838 million out of U.S. general domestic taxable fixed income, and government bond funds, respectively, but poured about $2 billion into short/intermediate investment-grade funds. More

Investors poured in a net $67.52 billion into global money market funds during the week, marking the biggest weekly net purchase since March 22, according to Refinitiv Lipper data.Investor caution was sparked after rating agency Fitch unexpectedly cut the United States’ top-tier sovereign credit rating to AA+ from AAA on Tuesday, citing fiscal deterioration.Reports this week showed a sharp contraction in factory activity in Europe and a slowdown in manufacturing activity in China, tempering investors’ expectations about global growth.The U.S. and the European money market funds drew $58.56 billion and $14.35 billion worth of inflows, respectively, while Asia faced a second weekly outflow, amounting to $360 million.Riskier global equity funds still received inflows worth about $4.45 billion in a second straight week of net purchases.Most equity sector funds, however, booked outflows, with investors withdrawing a net $490 million, $468 million and $318 million, respectively, from utilities, healthcare and tech sector funds.Global bond funds received $2.98 billion, their smallest weekly inflow in six weeks.Global government bond funds attracted $2.02 billion, the biggest in three weeks, but high-yield bonds faced outflows worth $749 million. Data for commodity funds showed precious metal funds lost about $892 million in a tenth straight week of net selling. Investors also disposed of energy funds of about $82 million.Data for 24,127 emerging market funds showed that investors withdrew about $487 million from bond funds after eight straight weeks of net purchases. Equity funds, however, received about $196 million worth of inflows. More